Big bang

Posted by: Jules Birch

31/08/2010

Build 100,000 social homes a year while saving £20bn a year. That’s the startling proposal put forward by the think-tank Policy Exchange today.

In the process, house price inflation would be abolished. Housing association and council homes would be nationalised and 84% of them sold off to tenants. Homeownership would expand to 80% of the population.

All this from the think-tank that is probably closest to the Cameroons. One of the previous major housing reforms it proposed - the right to move in 2009 - became Conservative party policy within three months.

So who pays the price for all that? First, people who currently qualify for social housing through needs-based allocations. These would be abolished and homes would go first to the severely disabled and then to people who’ve been on the waiting list for longest or who have the greatest local connections to the area. Other vulnerable tenants, such as those with children, would get three-year tenancies in the private rented sector with their landlords getting a £4,000 one-off payment. 

Second, housing associations and local authorities. They would continue to manage homes but would see their stock and debt taken over by central government and their debts paid off with the rents from existing tenants. In the meantime, the government would offer homeownership direct to tenants. 

Central government would then issue short-term bonds to finance the construction of new social homes with the initial social rent covering the interest payments. Rising rents would also generate a surplus that would pay off the principal debt and give any tenant paying their own rent a path to ownership. Government would pay maintenance costs of up to £2,000 a year until their ownership share reached 50%. If their circumstances improved, tenants could take out a mortgage and buy the home outright and they would also get improved right to buy discounts and a right to move and buy.

The existing social housing stock would be sold off as it became vacant - either through the path to ownership or on the open market. 

So far, so free market, but Making Housing Affordable challenges many of the ideas at the heart of the coalition government’s thinking too:

‘The idea that government can seriously “push down” claimants’ rents via cuts in Housing Benefit is largely false,’ says the report - arguing that housing benefit claimants do not make up enough of the market to set market prices.

‘Ending security of tenure in social housing is a mistake,’ it adds. It would mean anyone who improved their circumstances would face losing their home and in any case would only have a marginal impact as it would only apply to new tenants. 

The current reaction to the scrapping of house building targets, with almost all councils promising no new homes in their area, ‘should be ringing very loud alarm bells in government’.

There’s no way that the report can be accused of lacking ambition or pandering to vested interests. It rightly identifies new homes and house price inflation as crucial issues. But could its big bang proposals really work?

First, the assumptions about the number of sales of social homes seem optimisitc to say the least. The report claims that the net result would be 146,000 homes a year bought by tenants. ‘This is not that much higher than the first decade of Right to Buy sales (106,000 or so a year) despite the ease with which working tenants will be able to buy and the support available.’

Not that much higher? That’s 40% higher than at the height of the biggest housing sell-off ever when millions of existing tenants were actually in a position to buy.

If that’s over-optimistic, then it would impact on the financial assumptions behind the plan: £8bn a year proceeds  from stock sales when tenants die plus £10-15bn a year from sales to existing tenants. 

Second, there are big assumptions about the savings to be made from changing incentives and improving the proportion of social tenants in jobs but not much is said about the families that would have qualified for social housing but would now be stuck in expensive private lets facing even steeper disincentives to work.

Third, the plan relies on some heroic assumptions about big improvements to the supply of new homes and the end of house price inflation. 

The government would get two new targets just at the point it finishes abolishing the ones it inherited: that anyone working full time on the minimum wage should be able to afford an average UK lower quartile property by 2030; and that there should be ‘rough annual house price stability over the next two decades’.

The report points out that UK house prices rose by 133% in real terms between 1995 and 2006 and argues that the main reason was lack of new supply rather than excessive lending or immigration. 

That would be tacked through ‘real localism’ and ‘community-controlled planning’. Decentralising planning under the current system will just give nimbys more power, says the report.

Instead, homeowners directly impacted by a development would be balloted. The development would go ahead unless more than 50% vote against it. The costs of ballots would be paid by developers who would also be free to offer financial incentives (which sound pretty much like bribes) to those voting. 

While 75% of undeveloped land would be protected, the report argues that the result would be more homes of better quality, since residents would only vote for schemes that they approve of and will create a better quality of life all round. 

The report cites Kate Barker’s work on the effect of new supply on house prices and argues: ‘If supply had run at 1960s levels since 1980, around 175,000 extra dwellings would have been built a year, and real terms house prices would have risen much less than they did – from £75-80,000 to just £105-110,000. This would have brought the UK more in line with other countries – where they did build more homes.’

Ignore for the moment the fact that almost all of that extra supply in the 1960s came from council housing and that the private sector has never built anything approaching that number of homes. Even if housebuilders could be persuaded to rapidly expand, doesn’t this sound like the exact opposite of what Conservative MPs were celebrating with the end of regional strategies?